Raising "G-fees" is FHFA's Way Of Loosening Up Lending In High Risk States

Starting in 2013, the FHFA plans to increase G-Fees charged on single family mortgages.  The charges are only to be increased in those states that have the highest rate of defaults.

What are G-fees you ask?  G-fees or "guarantee fees" are basis points charged by Mortgage Backed Securities providers for bundling, servicing, selling, and reporting to MBS to investors.  It's primary purpose is to protect against losses from defaulted MBS.

Currently, the rates for G-fees are the same across the country.  But, next year, states with higher foreclosure rates will be paying in excess of 15-30 more basis points for G-fees.  The current average rate of G-fees are 15-25 basis points.  What this means to the consumer is about an increase of $3.50 to $7.00 per month on a mortgage for around $200,000.

Passing this on to the consumer does not place responsibility on the banks, and still presents the same issues we faced half a decade ago.  If the bank or servicer responsible for packaging the MBS paid for the G-fees, it would more than likely ensure proper packaging of securities. If the banks are not directly being impacted by these fees, what does it matter to them to continue to package loans as ineffectively as they did in the past?

What this presents to me is not a way of presenting defaults from occurring, but rather opening up the tight reigns of lenders in states with the most defaulted MBS.  It has been difficult, if not impossible  to secure a mortgage in states such as Florida, New Jersey, Connecticut, New York, and Illinois since the mortgage meltdown at the end of 2006.  Now that these states will be charged an increased premium in G-fees, lenders will be able to loosen guidelines for borrowers.

As the market appears to be bottoming out and actually showing very mild appreciation, over optimism is allowing for business to resume as it did in the past.  Charging more "fees" to allow lenders to write paper for unqualified borrowers sounds a lot like "sub-prime mortgages" to me.  Creative methods are great, but must have a control to acquit for economic stability.

Investment home flipping is on the rise, by over 25%

     As you already know, flipping properties was a way of life for close to half of the population in the early 2000's.  As lenders loosened up contingencies and qualification standards, more properties were purchased for investment purposes and things quickly spun out of control.  Mistakes were made that lead to a disastered market and crippled economy.  The market has been reshaped and government infiltration has placed strict restraints and precedents to control a downfall market such as the likes of the 2000's.  As the real estate market place inches itself into recovery, investors are capitalizing on a sea of foreclosures and short sales.  Below are the stats on current to date flips as of January 2012.

     That is correct! Investors have purchased more than 25% than last year.  Without investors to buy otherwise unwanted homes, this market would be in an out of control downward spiral.  Go ahead investors, pat yourself on the back.  Without the risk that real estate investors inherit when buying these homes and bringing them back to marketable and FHA worthy conditions, these houses would sit and rot.  And for those of you who doubt; think of this when you leave your home this morning and drive past that house on your street that has been on the market for over a year with grass up to the windows that are boarded up.  Because, without investors, that house will stay that way....

If you are looking to buy one of these houses, there are professionals that strictly find these homes for investors at drastically reduced prices.  A good start is to do some of your own research on your local markets.  Visit websites such as www.trulia.com, www.realtytrac.com, www.city-data.com, or local investment real estate websites.  A service provider that can locate these properties for you can be found at www.newwestern.com.

Good luck, and do your neighborhood a good thing by flipping that horrid house on the end of your street!